Will a India-EU trade breakthrough happen?

It was a summit based on huge expectations on both sides, the first between the leaders of India and the European Union since Brexit. The meeting was rich in symbolism, marking 55 years of diplomatic relations between the world’s two largest democracies. Political goodwill and determination to overcome road blocks were evident in the body language and statements emanating from the leaders, with the President of the European Council, Donald Tusk, quoting Nobel laureate Rabindranath Tagore: “It is important for the two sides to swim in the same direction despite their differences”.

Held in the shadow of repeated terrorist strikes in a continent which had once prided itself on its liberal democratic values, the Joint Summit Statement represented a political breakthrough on several issues. It was complemented by separate statements on combating terrorism, on clean energy and climate change, and on smart and sustainable urbanisation. The President of the European Commission, Jean-Claude Juncker, underlined: “We are the world’s two largest democracies. We are two of the world’s biggest economies. We share the same values and the belief that freedom, equality, tolerance and the rule of law. Working together with a like-minded partner like India simply makes sense. It is natural.”

Informed sources have indicated that many sensitive issues relating to India’s neighbourhood, including threats to India from jehadi terrorist groups based in Pakistan, the situation in Afghanistan and the potential for regional destabilisation by the flight of the Rohingyas from Myanmar to Bangladesh, were discussed at summit level in a free and frank atmosphere.

The actual language does not seem to accurately reflect the spirit of these discussions. Nevertheless forward movement is clear from the agreement to take decisive action against globally proscribed terrorists and terror entities including Hafeez Saeed, Dawood Ibrahim, Lashkar-e-Taiba, Jaish-e-Mohammad and others. It was agreed: “The European Union and India share a common vision of key global and regional challenges. The leaders addressed a number of pressing situations in the EU’s and India’s immediate neighbourhoods, as well as further afield.”

There was an indirect reference to Rohingyas with leaders committing themselves to strengthen cooperation “on migration and refugees, including under the United Nations process towards adopting Global Compacts for Safe, Orderly and Regular Migration and on Refugees.”

Other positive political developments include agreement to continue joint naval exercises and to expand cooperation in the area of maritime security. On October 4, 2017, the Italian flagship and headquarters of the EU’s Naval Force Operation Atalanta, ITS Fasan, conducted joint manoeuvres with the Indian Navy vessel INS Trishul off the coast of Somalia. This represents the first joint EU-India naval exercise and an important step forward in defence and military collaboration.

Leaders also welcomed the imminent operationalisation of the EU-India Horizontal Agreement on certain aspects of air services. The implementation of this agreement will restore legal certainty to EU’s aviation relations with India.

In a personal gesture to Prime Minister Narendra Modi, European Investment Bank (EIB) agreed to a new partnership with the International Solar Alliance to mobilise finance to develop and deploy affordable solar energy in solar-rich countries. The EIB also confirmed plans to provide a record EUR 800m for renewable energy investment across India.

In another show of solidarity, the EIB agreed to provide 500 million euros to support the construction of a new 18-station rapid transit line in Bangalore and the purchase of 96 train cars for use on the line. This support for investment to expand the second longest urban metro system in the country is the largest EIB loan in India and also the largest support for sustainable transport outside Europe.

An expected setback was the failure to kick-start the long stalemated negotiation on the BTIA (Broad based Trade and Investment Agreement). Since the Lisbon Treaty, the EU has not succeeded in concluding a Free Trade Agreement (FTA) with any developing country with the exception of Vietnam. It has no FTA with China, its largest trading partner.

Juncker tried to gloss over this amazing anomaly that the EU, India’s largest trading partner, with bilateral trade in goods exceeding $88 billion dollars in 2016, is unable to demonstrate flexibility in recommencing the negotiations ‘without conditions’. He acknowledged: “We agreed that we should take our trading relationship to the next level. It is high time for a Free Trade Agreement between India and the EU. Once the circumstances are right – and only once the circumstances are right – we will resume. Today’s Summit is an important step in the right direction and after hearing Prime Minister Modi I am confident we can move forward. Our chief negotiators will next sit down in November to chart a way forward.”

The emphasis on “circumstances being right” inserts conditionalities into an already difficult and contentious discussion. At the 13th India EU Summit in March 2016, President Juncker had spoken in a similar manner. He had emphasised that there should, in the first instance, be “movement on outstanding issues”, further complicating the negotiation.

The silver lining in the dark cloud is the indication that the principal interlocutors would be meeting next month to discuss these roadblocks. The Summit document also acknowledges that “Trade and investment represent important aspects of the EU-India strategic partnership.” It continues: “Leaders expressed their shared commitment to strengthening the economic partnership between the EU and India and to achieving the full potential of this aspect of our relationship. There are efforts on both sides to re-engage actively towards a timely relaunch of the negotiations for a comprehensive and mutually-beneficial Free Trade Agreement.”

Of great significance was the welcoming by Summit leaders of the recent launch of the Investment Facilitation Mechanism for EU investments in India. This measure will facilitate and encourage EU investments by providing concrete on-the-spot support to EU companies intending to invest in India, in particular by providing procedural guidance.

The absence of perceptible movement on the BTIA represents a constant irritant in the common quest to discover a new strategic paradigm. Indian interlocutors try to put a good face on the deadlock by noting that, in the worst case scenario, trade between India and EU would be governed by WTO regulations. In the background of this sombre analysis, a trade deal has never looked so far away.

To redefine the partnership and make it relevant remains the need of the hour. Well known analyst Bernd von Muenchow-Pohl made the pertinent observation that “Shared values do not equal shared interests”. He continues: “Since 2005, the EU-India relationship trudges along from Summit to Summit, occasionally issuing a new joint declaration or a similar document without adding much in terms of new substance, but seemingly trying to reassure each other of continued commitment.”

Taken from this negative perspective, the 14th Summit has certainly broken a new ground. It has put to rest the nagging suspicion that India and the EU were irrevocably moving from “strategic dissonance to strategic divorce”. In the ultimate analysis, the 14th Summit demonstrated that India and the EU have slowly but surely rediscovered each other. In a relationship supposedly based on three common characteristics, “democracy, diversity and internal differences”, increasing cooperation on strategic and defence issues should ultimately lead to a breakthrough on trade and business. What is required is political will and increasing recognition of each other’s strength and importance in an increasingly challenging international scenario. This was amply demonstrated at this Summit.

(The author is a former Indian ambassador to The Netherlands and UNESCO. The views expressed are personal. The article is in special arrangment with South Asia Monitor)